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I wanted to share with my friends and colleagues the most recent phase of my professional career. Last month I left Zynga and moved to Isle of Man to become Director of Social Gaming at Amaya’s Rational Group (PokerStars and Full Tilt Poker). At Rational, I will be leading and building the team responsible for replicating PokerStars’ success in the real money gaming world into social gaming. In addition to poker, where nobody can question Rational’s expertise, we see great opportunities in social casino, slots and social sportsbet (and, of course, some blue oceans).

The opportunity was irresistible because of Rational’s focus on the player. It has grown to be the leading real-money gaming poker product ( Rational was sold to Amaya last year for $4.9 billion) because of a laser focus on making their players’ happy. From my first interview, it was clear they were not interested in the short-term tricks that boost revenue but drive a wedge between the player and the company (all too prevalent in most social gaming companies) what is often referred to as bad profits, and instead creates value by creating the best player experience.

This customer-centric philosophy has not yet been tried in the social space and I find it incredibly compelling. I am excited about what my team and I will be doing soon and will surely share my experiences on this blog with my colleagues.

I have been reluctant to join the bandwagon of people declaring Facebook dead, either overall or as a social gaming platform, but I have gotten to the point where I have lost confidence in Facebook. It has been fashionable since Facebook’s IPO to say the platform was in trouble because of the shift to mobile. In the game space, the anti-Facebook crowd got started even earlier, suggesting the only wise course for social game companies was to develop for mobile platforms instead of Facebook. I was reluctant to join this chorus, given the incredible user numbers Facebook has and the revenue that some games were still generating on Facebook (which dwarfed comparable mobile games). However, I have been rethinking my position.

The big news in the social gaming space this week is that Facebook and Zynga have significantly changed their relationship. Two years ago, Zynga entered into a “special” agreement with Facebook that gave both companies exclusive privileges in exchange for special treatment. While Zynga’s stock has taken a much bigger hit than Facebook’s after this announcement, this new relationship will impact the changing social game ecosystem and the risks Facebook faces.

The Impact on Zynga

The key change that will negatively impact Zynga is that Zynga now must abide by Facebook’s Terms of Service (ToS). In the original agreement, Facebook gave Zynga the ability to bypass certain Facebook requirements, primarily related to cross-promotion and viral calls. Zynga will now have to follow the same policies other Facebook game developers face, primarily stopping its ability to promote games on Zynga.com or mobile from within its Facebook games. Continue Reading…

Much has been written about the opportunity for Zynga to accelerate its revenue by moving into real money gambling, but there is another contender coming from the social/casual game space who probably has a better chance of success. Last week, Big Fish announced it was teaming with Betable to bring a real-money, social mobile casino game (Card Ace: Casino) to the UK (and other markets where it is not prohibited). The announcement received less attention than the news that Zynga has spent about $75,000 on lobbying to legalize online gambling (keep in mind that you can’t even buy one Congressman for $75,000; that amount is virtually nothing in the world inside the Beltway).

Originally, I was not going to post about Zynga’s earnings report, which was released Wednesday evening. I am not a stock analyst and I did not feel I brought much to the party. However, the announcement caused so much conversation both from companies in the social gaming space and pretty much everyone else, that I felt remiss if I did not add my analysis.

If you haven’t seen the news, they had to halt trading today in Zynga’s share because of a very sharp decline. Given that there really has been no change in Zynga’s business, I would guess this is due to the secondary offering not sucking up enough demand for employee shares finding their way onto the market.

There are many conversations, articles and even books on how to optimize in-application purchases (IAP) in social games but most neglect the most important element. Rather than focusing on adding friction, tweaking price levels, running sales, etc., there is one aspect that does not get enough attention and can make all the difference between success and failure: Continue Reading…

There has been a development recently in the social gaming ecosystem that has generated very little buzz but probably will have a major impact moving forward, the fact that two of the top social gaming companies are now publishing third party titles. In the last few weeks, Playdom licensed Triple Town from SpryFox to publish in English on Facebook (Playdom announcement). Even more significantly, last week Zynga announced it was publishing Slingo (Washington Post article on Zynga’s move).

These moves are significant because for the first three years of the Facebook game business, the only publishing option for developers who could not or did not want to self-publish on Facebook was 6 Waves (now 6 Waves/LOLApps). With Zynga and Playdom both moving into third party publishing (though for Playdom, it did try some publishing in 2010), and the way the social game business is almost defined by fast following, it is likely smaller developers will have multiple publishing options on Facebook.

The Risks and Downside of Soliciting a Publisher

Before you rush out the door and try to find a publisher, I wanted to highlight a few of the risks. First, there have been a few big stories lately about companies allegedly “borrowing” ideas from developers. A few weeks ago I blogged about 6 Waves/LOLApps allegedly copying Triple Town while in negotiations with Spry Fox (my blog post). Earlier this month, a federal district court refused to throw out the lawsuit from SocialApps against Zynga claiming Zynga used confidential information obtained while negotiating to license myFarm (Zynga/Social Apps article).

A second reason not to rush into a publishing relationship is the foregone revenue. In the social gaming space, I have seen many publishing deals pay the developer up to 50 percent of revenue, especially if no advance or guaranteed payment is involved. In the traditional core game space, the royalty back to the developer is usually in the 15% to 35% range (i.e, the developer gets paid 15 percent of the revenue its game generates). So you are looking at foregoing from half to more than three quarters of your revenue, which could be a huge cost if the game is a hit or even keep you from breaking even if the game is mediocre.

A third concern with using a publisher is how much mindshare and resources the publisher will devote to your game. When you are negotiating, they will tell you how much they love you and will treat it just like an internal title. That claim is worth about as much as a politician’s promise during an election campaign. Now the first few games a publisher licenses will probably get a lot of attention, as their publishing model matures you will be fighting for resources with all the third party titles (and not even be in the conversation compared to first party titles). If the game comes out of the gate strongly, they will probably continue to promote it. If the game, however, stumbles either in terms of monetization or overall adoption, you are likely dead. Once the publisher moves on to another game, they will not revisit yours regardless of the changes you make (despite what they say). In my experience, contractual marketing commitments have little value. Publishers will either ignore them or fudge the numbers. At the end of the day, if the game is not hot they do not worry about losing the rights.

Reasons to Consider Using a Publisher

Although there are some significant drawbacks to using a publisher, there are still several major reasons to consider this option. Most importantly, it costs a boatload of money to launch and market a social game. The major Facebook game publishers spend well over $3 million per month per top title just on Facebook ads (with some spending much more than that). Those companies that claim to generate most of their installs organically (cross promotion, virality and other free channels); well see my comment earlier about politicians during an election. You may be able to get traction and grow a game slowly and steadily without a huge marketing spend, but if you want to acquire users quickly (important if you are worried about being cloned), you need access to deep pockets. If you do not have the resources on hand, a publisher can be an appropriate choice.

A second reason is cross-promotion. The major social game companies have millions of monthly users that they can direct to a chosen title (in Zynga’s case, hundreds of millions). For a company launching its first title or one that does not have a large user base, the traffic a publisher can bring is a huge advantage.

A publisher can also give a developer expertise in does not have. Small developers, especially if they are on their first social title, may not have the understanding of monetization, analytics, game services (customer support) or marketing/user acquisition, which a proven publisher does. These competencies are often the difference between success and failure for a social game. Depending on the type of relationship you enter into, access to the publisher’s expertise could be more valuable than anything else they bring to the table (and may have a greater long-term benefit to your company, as you can then learn and leverage these skills on future titles).

When to Use a Publisher

Unfortunately, there is no clear cut rule as to when to use a publisher or when to self-publish. It is not just an issue of size, even some of the largest publishers license to other publishers outside their core markets. The thing you must do is look at the situation objectively and weight the benefits and costs.

You must also do your due diligence on the publisher so you can minimize those costs and risks. See how they have treated other developers. Understand how your product fits into their portfolio. Learn how they will market your game and what their key indicators are for continued support. Go past the first phone call and dig deep to understand exactly what they can and cannot do for you. Then, once you have made your decision, get behind it fully and do everything you can to succeed.

About Lloyd

Director of Social Gaming, Rational Group

I run social gaming for the Rational Group (PokerStars and Full Tilt), part of Amaya. I have been a central part of the senior management team (CCO, GM and CGO) at three exits (Merscom/Playdom, Playdom/Disney and Spooky Cool/Zynga) the past 3 years. I was previously Sr Director with Zynga's social casino organization. As a profit-oriented executive and creative consumer behavior expert with an entrepreneurial spirit, I bring to the table a proven track record spanning over 2 decades in taking companies to breakthrough financial, market, and operational success.

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